Tebbets v. Mercantile Credit Guarantee Co.

• Decision Date: 17 March 1896
• Parties: TEBBETS et al. v. MERCANTILE CREDIT GUARANTEE CO. OF NEW YORK.
• Court: U.S. Court of Appeals — Second Circuit

73 F. 95

TEBBETS et al. v. MERCANTILE CREDIT GUARANTEE CO. OF NEW YORK.

United States Court of Appeals, Second Circuit.

March 17, 1896

This case comes here on writ of error to review a judgment of the circuit court, Southern district of New York, in favor of a defendant in error, who was defendant below. The action was brought on a policy of insurance against business losses or 'uncollectible debts,' issued by the defendant to the plaintiffs. The total amount of uncollectible debts for which it was claimed the defendant was liable under the policy without deducting the 'initial loss' to be borne by the plaintiffs, was $8,016.56, and they were adjusted by defendants at that sum. The total gross sales and deliveries made by the plaintiffs during the period covered by the policy amounted to $778,015.08. Plaintiffs contended that the initial loss to be borne by them was one-half of 1 per cent. of that sum which amounts to $3,890.07, and they asked judgment for the balance of loss, viz. $4,126.29. The defendant insisted that the initial loss, under the terms of the policy, was $9,000,-- a sum greater than the total loss, as adjusted. The circuit court sustained defendant's contention, and directed a verdict in its favor.

Albert Stickney, for plaintiffs in error.

A. J Dittenhoffer, for defendant in error.

Before PECKHAM, Circuit Justice, and LACOMBE and SHIPMAN, Circuit Judges.

LACOMBE Circuit Judge (after stating the facts above).

One question only is presented under this writ of error, and it arises upon the construction of a written instrument. Insurance against mercantile losses is a new branch of the business of underwriting, and but few cases dealing with policies of that character have as yet found their way into the courts. The necessarily nice adjustments of the respective proportions of loss to be borne by insurer and insured, the somewhat intricate provisions which are required in order to make such business successful, and the lack of experience in formulating the stipulations to be entered into by both the parties to such a contract, have naturally tended to make the forms of policy crude and difficult of interpretation.

One of these policies, differing in many respects from the one under discussion in this case, was before this court in Guarantee Co. v. Wood, 15 C.C.A. 563, 68 F. 529. Of a clause ambiguous in its phraseology and contradictory of other paragraphs in the contract, the court said:

'As that contract is a voluminous document, prepared by the company, any ambiguity in its phraseology should be resolved against the draftsman. * * * If the particular clause requiring interpretation cannot be brought into harmony with the rest of the contract, and the instrument considered as a whole is ambiguous touching the precise loss which the policy covers, that meaning is to be given to it which is most favorable to the insured.'

In Wallace v. Insurance Co., 41 F. 742, the United States circuit court for the district of Iowa expresses the same principle in this language:

'A contract drawn by one party, who makes his own conditions, will not be tolerated as a snare to the unwary; and if the words employed, of themselves, or in connection with other language used in the instrument, or in reference to the subject-matter to which they relate, are susceptible of the interpretation given them by the assured, although in fact intended otherwise by the insurer, the policy will be construed in favor the assured.'

In Wadsworth v. Tradesmen's Co., 132 N.Y. 540, 29 N.E. 1104, the court says:

'If this policy is so framed as to promise a payment of $4,000, and then to impair the promise by the introduction of subsequent and obscure clauses, difficult to be understood, or requiring expert knowledge for their comprehension, we should adopt that construction which we think the insurer had reason to suppose was understood by the insured.'

In the light of the well-settled principle of law expressed in these authorities, the contract under consideration must be construed.

The cases cited by defendant in error holding that a surety is 'a favorite of the law,' and that a claim against him is strictissimi juris, have no application. Corporations entering into contracts like the one at bar may call themselves 'guarantee' or 'surety' companies, but their business is in all essential particulars that of insurers, who, upon careful calculation of the risks of such business, and with such restrictions of their liability as may seem to them sufficient to make it safe, undertake to assure persons against loss, in return for premiums sufficiently high to make such business commercially profitable. Their contracts are, in fact, policies of insurance, and should be treated as such.

The material parts of the contract under consideration are as follows. First comes the application of the assured:

'No. 2,008. Amount, $15,000.

'The Mercantile Credit Guarantee Company of New York. 'Head Office, 291 Broadway, New York.

'Contract expires Dec. 31, 1893.

'Indemnified stands 1/2 of 1 per cent.

'Fee, $472.50.

The undersigned hereby applies to the Mercantile Credit Guarantee Company of N.Y. for a contract to purchase from him uncollectible accounts in the sum of fifteen thousand dollars, for one year from Dec. 31, 1892, in the usual form of contract issued by the company, and upon the terms and conditions therein specified, and for that purpose selects the Bradstreet Co. Mercantile Agency as his informant and guide, as designated in said contract, and states that he is engaged in the business of cottons & woolens, at 72 Bedford St., Boston, Mass., and 75-77 Worth St., N.Y., and that the amount of his gross sales and deliveries of merchandise for cash and on credit, and the percentage of losses on the same, for the 14 months preceding the 1st day of Dec., 1892, were, respectively, as follows:

Gross sales for year ending . . . day of . . . $

Gross losses not exceeding . . . . . . . . . . $

Gross sales for year ending . . . day of . . . $

Gross losses not exceeding . . . . . . . . . . $

Gross sales for year ending . . . day of . . . $

Gross losses not exceeding . . . . . . . . . . $

'Remarks.

'Cotton sales, Sept. 1/91, to Dec. 1/92, $662,835.65

'Gross losses, Weis Bros., Galveston, Texas, $479.69.

' ' M. J. Henry, N.Y., $844.03.

'Goods sold 2 per cent., 10 days and 30 days; special a/c, 4 months.

'This contract to cover all goods billed since Oct. 1/92, not provable under U.S. Credit System Co.'s contract No. 3,909, Series H, Class E. Have proved no excess on either cotton or woolen goods under the U.S. Credit System Co. contract in 1892. Our woolen sales in 1892 were small, and form no basis for an estimate of probable losses in 1893.

'Boston, Dec. 13, 1892. Tebbets, Harrison and Robins.'

This application is a printed form. The parts italicized and all subsequent to the word 'Remarks' were originally blank, and have been filled in with ink, presumably before the application was finally presented for action. On the reverse side of the application are a number of so-called 'Special Terms and Conditions.' In the record they cover 3 1/2 printed pages. The first...